As demand for faster payments grows, so does the risk of fraud. More than 170 million U.S. consumers received at least one disbursement in the past year, highlighting the need for rapid transactions.
According to a PYMNTS Intelligence report, “Protecting Accelerated Disbursements From Fraud,” in collaboration with Ingo Payments, the speed of these payments creates new challenges, as intercepted funds are often irretrievable. To manage this, financial institutions (FIs) are adopting advanced technologies like artificial intelligence (AI) and machine learning (ML) to combat fraud and enhance the security of instant payments.
Instant payments are becoming a must-have for financial institutions, with 78% of FIs and businesses considering them essential for their operations. Services like the FedNow® Service, The Clearing House’s RTP® network, and Zelle are gaining traction, with nearly 9 in 10 FIs planning to adopt or already offering these solutions.
But faster payments carry inherent risks, due to their irreversibility, making fraud recovery nearly impossible. Fraudsters target real-time payment systems with tactics like social engineering and account takeover (ATO). In 2023, 27% of firms using real-time payments reported a rise in fraud, up from 13% in 2020. Given the speed of these transactions, fraud must be detected and prevented almost instantly to avoid losses.
To effectively combat fraud, FIs are turning to AI and ML technologies, which are proving effective at detecting fraud in faster payments. These technologies analyze large amounts of transaction data in real time, spotting suspicious activity and preventing fraudulent payments before they are completed. According to the report, 71% of FIs are using AI and ML for fraud detection, up from 66% in 2023. These technologies can detect anomalies and patterns that might elude human analysts, allowing for quicker decision-making.
One of the primary threats identified by the industry is ATO fraud, which accounted for 52% of fraud concerns in faster payments. AI and ML tools are well-suited for detecting these types of fraud because they learn from transaction data and adapt to new fraud tactics. This adaptability is crucial in staying ahead of sophisticated fraudsters who constantly evolve their methods.
Despite the advantages of AI and ML, many FIs face challenges in implementing these technologies due to limited expertise and resources. While 48% of fraud prevention technologies are developed in-house, only 14% of FIs have the capability to build AI and ML solutions internally.
As a result, third-party solutions are becoming important. By 2025, according to the report, 70% of FIs will rely on third-party vendors to provide AI-driven fraud detection and prevention tools.
Third-party providers, such as Form3 and Feedzai, are making strides in fighting fraud with AI-powered solutions.
For example, in the U.K., Form3 has partnered with Feedzai to create a system that detects authorized push payment (APP) fraud by analyzing discrepancies in payment sender and recipient behaviors. This partnership shows how external solutions can provide the specialized technology and expertise needed to tackle fraud challenges in real-time.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More